Jena cold to fertiliser firms on urea prices

Urea price deregulation would be an option only after all producing units in the country became gas-based: Jena

Urea producers’ demand for a big rise in the price of this regulated commodity has a principal objector in the fertiliser ministry’s deputy head, minister of state Srikant Jena.

The past two years have seen a big rise in the prices of deregulated fertiliser, making the government cautious on deregulating urea, the most consumed of these products. Speaking to Business Standard, the minister questioned the industry’s rationale and intentions on this. Urea price deregulation would be an option only after all producing units became gas-based, he said.

Recently, A Vellayan, chairman of Coromandel International and former former chairman of the Fertiliser Association of India, called for an increase in urea prices by at least 40 per cent. How, Jena asked, would the industry gain if the price was raised? “The urea industry in India is the most insulated; it straightway gets a 12 per cent profit on the cost of production,” he said.

Industry officials dispute this, saying the profit estimated by the government is calculated on weighted average. So, if the efficiency of a plant is low, so is its profit. At the same time, if the efficiency of a plant is good, its profit is not supposed to exceed 12 per cent. Also, the fixed costs are calculated on the basis of 2002 prices, they said.

U S Awasthy, chairman of Indian Farmers Fertiliser Cooperative Ltd, recently suggested the subsidy on urea be reduced as its prices were “abnormally low” and to increase it on non-urea fertilisers to “maintain a balance”. Jena said a better way to establish balance would be to bring down the prices of di-ammonium phosphate (DAP) and muriate of potash (MOP). “Industry is worried as these products (DAP and MOP) are not getting sold,” he said.

The prices of non-urea fertilisers have seen a big rise in the two-plus years since the Nutrient-Based Subsidy (NBS) scheme was implemented. Since then, the prices of DAP and MOP, respectively, have gone up from around Rs 9,000 per tonne and Rs 4,500 per tonne to Rs 24,000 per tonne. The industry says it can’t do much to reduce these as India is significantly dependent on imports for DAP and completely so for MOP. To this, Jena said international “cartels” should bring the prices down.

Indian companies have not signed contracts for the supply of MOP in the current financial year, primarily due to lower consumption in domestic markets, which has led to high inventories and also due to high prices in international markets. Last year, too, the signing of contracts was significantly delayed as India declared a potash holiday, protesting against high prices in the international market.

On deregulating urea, Jena said it was out of the question unless all urea plants turn to natural gas as a feedstock for urea production.

Of the 30 plants in the country, close to 10 still use naptha or furnace oil as feedstock.